TLDR
- Economist Robin Brooks expects 100 bps in cuts under Warsh by October 2026.
- Markets expect only 40 bps in Fed rate cuts over the same period.
- Warsh could take the benchmark rate down to 2.5%–2.75% by November.
- Bitcoin fell from $84.5K to $75K amid fears Warsh may stay hawkish.
Kevin Warsh, nominated by Donald Trump to lead the Federal Reserve, may push aggressive interest rate cuts totaling 100 basis points this year. Economist Robin Brooks expects these cuts to begin after Warsh takes over, contrasting with market expectations of slower easing.
Brooks Predicts Fast and Deep Cuts by New Fed Nominee
Kevin Warsh, Donald Trump’s nominee to head the Federal Reserve, may lead the central bank to slash interest rates by 100 basis points in 2026. Economist Robin Brooks, a senior fellow at the Brookings Institution, made the forecast in a recent report.
Brooks expects rate cuts in June, July, September, and October. These would lower the benchmark borrowing rate from the current 3.5%–3.75% to around 2.5%–2.75% before the November mid-term elections. He said, “This could be portrayed as a reset of monetary policy to acknowledge a lower neutral rate.”
JUST IN: Robin Brooks expects Trump’s Fed pick Kevin Warsh to cut rates by 100bps before the midterms. pic.twitter.com/6UnUVBCWkY
— Karan Singh Arora (@thisisksa) February 3, 2026
Markets, however, are only pricing in 40 basis points of cuts for the same period. Brooks noted that this gap could create market surprises if Warsh moves faster than expected.
Markets React to the Prospect of a Warsh-Led Fed
Market volatility increased as speculation about Warsh’s nomination grew. Bitcoin dropped from $84,500 to under $75,000 between Thursday and the weekend. Investors feared that Warsh’s past hawkish stance would delay easing, causing risk aversion.
Gold and silver also experienced major selloffs, falling by 9% and 26% respectively on Friday. Meanwhile, the dollar index strengthened as investors sought safer assets. This reaction reflects uncertainty over whether Warsh will continue Powell’s easing path.
Brooks believes fears of a hawkish Warsh are unfounded. “Many came away with the mistaken impression that Warsh will be hawkish,” Brooks said. “He can’t and won’t be.”
Warsh’s Policy Views May Now Align with Lower Rates
During his time as a Fed governor in the 2008–09 crisis, Warsh was known for prioritizing inflation control. However, his recent statements suggest a shift. In a November 2025 Wall Street Journal op-ed titled The Federal Reserve’s Broken Leadership, Warsh argued for structural reform and stronger long-term growth through higher productivity.
Warsh sees recent advances in AI as a way to boost productivity and ease inflationary pressures. He wrote that a one-percentage-point increase in annual productivity growth could double living standards within a generation. This view could support deeper rate cuts to encourage investment and consumption.
According to Brooks, Warsh may adopt a narrative that connects AI-driven productivity to lower inflation. This framework could justify cuts even without a major downturn or crisis, helping the Fed maintain flexibility and support economic growth.
Trump’s Friction With Powell Fuels Expectations of a Shift
Jerome Powell’s term as Fed Chair ends in May. Under his leadership, the Fed kept interest rates steady at its last meeting after three consecutive cuts totaling 75 basis points. Trump has openly criticized Powell for not cutting rates more aggressively.
Trump previously called for interest rates as low as 1%, blaming Powell for harming the economy. Warsh, as a Trump appointee, could face pressure to act more decisively to lower rates and align with the administration’s goals.
Brooks added that Warsh may be motivated to avoid political backlash. “His worst nightmare is probably to have Trump turn on him like he did on Powell,” he said.
If Brooks’ forecast proves accurate, Warsh’s appointment may surprise investors and reset expectations for U.S. monetary policy in 2026.
